Managing Personal Finances 101

More often than not, people choose to avoid dealing with finances, consciously avoiding the big black hole that is financial planning – I’m guilty of the same. After all, when there are so many more fun things to do, why would we waste our time organizing our financials? Right?

WRONG.

Today, more and more millennials are fast-tracked on a road to financial independence, and this is only possible with good planning. Learning how to organize your money is one of the greatest skills you can acquire, and will hold you in good stead throughout your life. You know how they say learning a language is so much easier if you started at a young age? The same is true for financial organization – when you start at a young age, being aware of your money becomes a habit, and this knowledge makes it easier to plan your finances when things get a whole lot more complicated with salaries, taxes, investments and more.

Rather than struggling later, you might as well pick up some basic financial planning skills at an age where it is still acceptable to make mistakes and learn from them.

Personally, my constant state of “being broke” in college forced me to learn how to get on top of my finances. I found that with a little advanced planning and the implementation of saving methods, personal finance management does not have to evoke a deep sense of dread within you. Rather, you’ll be pleasantly surprised with the extra cash you might accumulate by using these basic practices in your everyday life:

Learning How to Budget

When I was in my early teens, living off allowances and pocket money, my parents insisted that I keep an account of my spending. Back then, I found this task tedious and bothersome, but today I realize the value of keep track of expenses. Knowing how much you spend and what you spend money on is essential while creating a budget. In turn, maintaining a budget is key to having your finances in order. A budget is a tally of your income (money that comes in) versus your expenditures (money that goes out).

It’s important to create a budget based on your cash flow so that you aren’t running short during periods of spending. If you are new to budgeting, a good way to start is by first monitoring your current spending, noting down where your money is going. After you get a good idea of how much you spend within a fixed time interval, say every month, you can compare your expenses to your income. Then, after noting down where you can cut expenses, and where you absolutely can’t, you can create a monthly budget.

Budgeting apps like Mint are extremely helpful when it comes to being able to access your budget anytime. One thing to remember while creating a budget is to always allocate an amount for miscellaneous expenses. Whether you use this allocated amount is immaterial, but in times of need (like when you absolutely can’t resist buying those new shoes at the store) this little cushion will help keep your budget in check.

Creating Motivating Goals

It’s always good to have a goal in terms of money. Goals can be short-term – like saving up for some new clothes – or long-term – like saving up for a holiday vacation sometime in the future. My current goal is to save enough to be able to go on a scuba diving trip in 2016, and so I make sure to set a small amount of my paychecks aside to help achieve this goal. At first this was hard, mostly because I would rather spend that money on something immediate for a sense of instant gratification. But after a couple months of doing this, it became a force of habit, and my scuba diving fund is slowly but steadily growing. In fact, I’ve already saved enough to book my diving course as well as a place to stay during my travels. Having a goal encourages you to stick to your budget, and gives you a huge sense of satisfaction when you goal starts to come into fruition.

Learning How to Save Money

There are many different ways to save money. A good long-term investment is to open a savings account. A savings account, in simple terms, is a deposit account held at a bank that holds on to the money deposited and also provides a modest interest rate. Then, try to allocate a small portion of your paycheck towards your savings. This amount doesn’t have to be large, but if this becomes a regular habit, the amount will soon start to add up. Before you spend on other things, make sure you put this amount aside into your savings by planning for it in your budget. Eventually, your savings can be invested so that you are essentially “earning money on your money”.

Another way to save is to incorporate basic changes in your daily habits. Before spending on a certain item, ask yourself how necessary your expense is, and whether it will tie into your goals. For example, if you spend a lot of money on your Car, consider learning some auto-hacks, in terms of gas savings, of fixing basic car problems so as to save you unnecessary spending on trips to the mechanic. Personally, I ended up saving a sufficient amount of money by simply waking up a little earlier so that I had time to make a cup of coffee at home, rather than buying one every day on my way to class. At first it doesn’t seem like much, but these changes in your daily routine do add up!

Other small habits that could contribute to overall saving include turning off the electricity and carrying home-cooked lunches to work instead of eating out. Acquiring new simple skills and taking the time to look for alternative measures in any aspect of daily life can very beneficial over time in terms of saving money.

Considering the Long Term

It’s always good to keep the bigger picture in mind when considering your personal finances. Thinking long term allows you to always have a cushion in times of need, which may not seem important now, but will come in handy later. Some of the basics of long-term planning include having a savings account (described above), a retirement and pension plan, and long term insurance. I know that retirement and old age are stressful to think about it, but it is essential to plan for these times. Investopedia is a great resource for learning more about long-term planning, and teaches you the basics of everything from quantifying your needs to how to take action. The best part – it’s free!

While actively planning out your retirement may not concern you immediately depending on your age and career status, it’s a good practice to keep an idea of the long term in the back of your mind. For people our age, considering the long term includes taking full advantage of our youth to drive us into success later. For example, it could include utilizing your spare time to create some supplementary income for yourself that could go into your savings. Today, there are a plethora of advanced degrees one can acquire such as medical assisting and coding. These degrees are available to even those who haven’t completed college, and are great options for those looking for something to do in their spare time. Doing something you are interested in, while also getting paid for it is a wonderful way to make a little extra dough, and relieve some financial stress for the future!

I hope that these tips help you organize your finances and encourage you to start managing your money sooner rather than later. All these aspects of individually managing money are interconnected, and you will see how they fit seamlessly into one another, to create a well-oiled financial organization machine, if you will. In a nutshell, all you have to do is remember to budget, save, have goals and keep the big picture in mind – and soon, after some trial and error, you will be on top of your finances like a pro!

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Akshata is a 23-year old who is healthily obsessed (or so she believes) with all sorts of planning and management. As a certified scuba diver, she has had the privilege to be a part of some exciting adventures. In her spare time, she writes about travel, food, and her daily doings on her blog, The Happy Ranter.